Thread by @IDrawCharts

mini-thread on managing leverage

I regularly run accounts at 3-8x leverage, not to over-size but to reduce the amount I have to keep on exchanges

but this means a bit of extra management. While trades might be sized properly, it's important to consider liquidation risk

while these accounts are usually hedged to some degree (either capturing basis/funding or doing some form of pair/beta trading), even if I'm sized to lose small on a loss, the total margin is also at risk if the trade goes sideways, which means there's a risk of losing bigger

if you're operating efficiently, you're likely using non-USD collateral for trades

it's important to consider the range of potential drawdown from a particular trade IN TANDEM WITH the range of drawdown potential on your actual collateral

One of my $SOL-margined accounts is at ~2.2x leverage rn

but if the trade value remains static while $SOL drops 20%, I've gone from being able to withstand a ~45% drawdown to only 36%

it's important to consider how correlated your trades are

If my trade is correlated with the rest of the market, it's likely to drop at the same time as my collateral, and my risk of liquidation is much bigger than it might look

it's important to keep these things in mind

correlation/beta matrices and managing liquidation risk using volatility measures could turn this into a complicated discussion

but the simplest version is "always assume you have a lot less non-USD margin value than you think you do"

my rule of thumb is basically "if my margin value dropped 30% and my trade hit max allowable drawdown, would I get liquidated?"

if yes, add margin

figured I'd mention because I'm taking stock of sub-accounts rn and how well-collateralized they are

spoiler, most of them need topped off

but none of them are liquidated

always be vigilant